SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA
Financing
Module 19:
FINANCING OPTIONS FOR RENEWABLE ENERGY AND ENERGY
EFFICIENCY
Module 19
SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA
Module overview
• Point of view of banking and financing institutions and
risks associated with renewable energy (RE) and energy
efficiency (EE) projects
• What are different financing models for RE and EE
projects
• Possible policies and incentives to increase involvement
of banking institutions
• Examples in different developing countries
Module 19
SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA
Module aims
• Present different financing models that have been
developed and tested for RE and EE projects
• Explain point of view of banking and financing institutions
and risks associated with RE and EE projects
• Present possible approaches / policies / incentives to
increase involvement of banking and financing institutions
• Show examples in different developing countries
Module 19
SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA
Module learning outcomes
• Be able to explain the existing financing models and the
reasons for their success or failure
• Understand which risks and elements are key for financing
institutions when evaluating RE and EE projects
• Understand different options for policies and
regulatory/support mechanisms to provide incentives for
financial institutions
• Be able to argue which policy or regulatory approach suits
best, given the national or regional situation
Module 19
SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA
Introduction
• RE and EE projects have a rather poor reputation within
the financing community because they are viewed as
higher risk investments:
– Political risk
– Technology risk
– Market risk
Module 19
SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA
The Financier’s Perspective
• Risks:
– Risk assessment and risk control
– Each of the key risks involved allocated and priced
• Returns:
– Calculate return on investment
=>Risk / Return profile
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SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA
Types of Financing
• Debt
– Bond or loan + interest to be paid back
– Commercial and development banks and funds
• Equity
– Capital in return of share/ownership
– Higher risk investment
– Venture capital, institutional investors
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SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA
Types of Financing (2)
• Grants
– “Gift”, no repayment, specific goals and conditions
– Development organisations
• Guarantees
– Covers remaining risk to attract private sector
– Development banks, MIGA
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SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA
Financing Models
• Government-led:
– Government manages and coordinates funding
• Ex. Rural electrification (solar) in Mexico, Chile and (hydro) in China
• Market-based
– Consumer Finance
– Leasing
– Fee-for-Service (ESCO)
• Ex. Sri Lanka, Honduras, South Africa (RE), China (EE)
Module 19
SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA
Existing Policies and Regulations
• Direct: Fiscal measures and Subsidies
• Market based: Feed-in/Quota systems/Clean Development
Mechanism
• Audits and Feasibility studies
• Institutional Finance, ex. IREDA in India
Module 19
SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA
Existing Policies and Regulations (2)
• New funds and initiatives from development Banks:
– Energy Efficiency Initiative / RE Investment Fund – Asian
Development Bank
– Sustainable Energy Initiative – EBRD
– African Development Bank
– IFC
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SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA
Design Aspects to Attract Investments
• Institutionalise clean energy policy:
– Adopt laws, decrees and regulations
– Appoint dedicated agency to implement policy initiatives
• Decrease investment costs:
– Cf. subsidies/tax breaks/Feed-in and Quota systems/Clean
Development Mechanism
• Decrease investor's risk:
– Provide guarantees
– Investors to develop risk assessing tools tailored to specific nature
of RE and EE projects
Module 19
SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA
Design Aspects to Attract Investments
(2)
• Increase investor's confidence:
– Include long term targets and incentives in legal framework
• Increase awareness among key stakeholders:
– Bankers / TSOs / local agencies
• Decrease transaction costs:
– Tools to be developed cf. EEI-ADB and Programmatic CDM
Module 19
SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA
List of Funding Resources
• International multilateral funding
– Ex. World Bank, GEF, IFC
• Regional Development Banks
– Ex. ADB, AfDB, EBRD
• Bilateral Agencies
– Ex. DfID (UK), GTZ (Germany), US AID
Module 19
SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA
List of Funding Resources (2)
• Government Finance
• Private Funds
– Ex. Commercial banks / Ethical banks / Micro Finance Banks
• Private Foundations and Charities
– Ex. Shell Foundation – BreathEasy Kenya
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SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA
Examples
• Rural Electrification SHS:
– Kenya
– Morocco
– Sri Lanka
• Bagasse Cogeneration in Asia
• EE Investments in China's state owned energy-intensive
industries
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SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA
CONCLUSIONS
• Financiers` perception in RE/EE investment based on risks
and returns
• Range of funding options and models available
• Clean Energy Policies should focus on:
– Decrease investment costs for investors/project developers –
several instruments available
– Decrease risks – by governments (guarantees) and investors (risk
assessing tools – familiarise with RE and EE technologies)
– Increase investor's confidence by adopting long-term legal
framework
– Decrease transaction costs
Module 19
SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA
Questions/Activities
“Private financiers will never be interested
in RE and EE projects because they are
too risky and small scale.”
True or False?
Discuss
Module 19